TOKYO (Reuters) - The aftermath of Japan's earthquake and tsunami has seen a rare flow of money into mutual funds based on domestic equities as a bargain-hunting mood took hold, but retail investors are more focused on foreign and property-linked funds with higher returns.
Japanese retail investors, who hold some $15 trillion in personal assets, are keen to diversify so as to obtain higher returns and are showing interest in currency-select funds and those related to Brazil or offering monthly dividends.
"We've seen flows by Japanese retail investors into foreign funds since the March disaster. I don't think the general trend has changed before and after the disaster," Naohika Baba, chief Japan economist at Goldman Sachs, told the Reuters Rebuilding Japan Summit in Tokyo this week.
"A trend of retail money flowing into such funds as Brazilian funds and REIT funds is continuing," Baba said.
Japanese retail investors have poured about $5 billion into North American real estate mutual funds since March, their biggest net investment in any category of funds tracked by Thomson Reuters Lipper, boosting total assets of such funds to $20.7 billion at the end of May.
North American real estate funds domiciled in Japan produced average returns of 11.56 percent in the first five months of 2011, the data showed.
Property funds have generated strong interest in Japan's $818 billion mutual fund market over the past year, with such funds showing a strong performance as ample liquidity in the global market saw money pouring into oversold property-related funds after the Lehman shock, analysts said.
Inflows have persisted into REIT (real estate investment trust) funds, especially after the Bank of Japan started an asset buying scheme to spark the economy last year, giving a boost to shares in REIT-related companies, distribution sources said.
The asset size of REIT fund reached an all-time high of 5.0 trillion yen ($62 billion) in May, the Investment Trusts Association of Japan said in data released last week.
High-yield U.S. dollar bond funds have been the second most popular category since March, with net inflows of $4.7 billion, followed by global real estate funds, which attracted net inflows worth $4.3 billion, Lipper data showed.
"High-yield foreign corporate bond funds and currency select funds continue to draw strong interest as investors closely focus on places that are performing well," said a distribution source who spoke on condition of anonymity.
FLOWS IN JAPAN EQUITIES FUNDS
In a rare move, mutual funds that invest in Japanese equities saw their first net inflows in two years, with investors pouring money into themed funds such as those investing in firms with products related to clean energy.
Japanese equities funds that donate part of their proceeds to areas hit by the March 11 disaster also drew strong interest.
Asset managers regard retail investors as important to their business, and say they are focused on offering products that meet such demand.
"Retail investors are expected to diversify their investments by seeking opportunities abroad. We want to think how we could meet their interest," said Koichi Miyata, president and chief executive of Sumitomo Mitsui Financial Group.
"With regard to products, for instance, we may focus on offering foreign funds. For Japanese products, we may offer funds that focus on businesses with growth potential, and our customers also are seeking funds related to the rebuilding of Japan. Our key goal is to broaden our client base."
The $52.8 billion Japanese equity funds category has seen a revival, with investors pouring nearly $2 billion into it since March, data from Thomson Reuters Lipper showed.
The fund category had seen outflows worth about $1.5 billion in the previous nine months. Meanwhile the net asset value of these funds has fallen 9.3 percent since March.
Still, it is premature to say the market will see steady money flows into Japanese equity funds in the coming months as a stronger yen and unclear global economic prospects were expected to limit gains in Tokyo share prices, analysts said.
Uncertainty in the long-term prospects of the Japanese economy were also expected to keep curbing the enthusiasm of retail investors for domestic equity funds, they said.
The asset size of Japan mutual funds stood at 65.8 trillion yen as of May, but that was still 20 percent below the peak of 82 trillion yen set in October 2007.
"As long as the Japanese economy remains this way, the size of Japanese mutual funds is expected to stay near where it is now," Goldman's Baba said.
"But if the Japanese and global economies improve and push up share prices then they will have more room to invest. If share prices rise then investors can be more keen about taking risks and invest more," he said.
($1 = 80.545 Japanese Yen)
(Editing by Michael Watson)